It is a widely observed fact that in many European countries, regions of low population density get subsidies that are not justified by their size. This paper throws some light on the effect of this phenomena on location of manufacturing activities. Considering a simple two-region economic...

This paper considers tax competition and tax harmonization in the presence of agglomeration forces and falling trade costs. With agglomerative forces operating, industry is not indifferent to location in equilibrium, so perfectly mobile capital becomes a quasi-fixed factor. This suggests that...

The paper reviews the theoretical literature on capital tax competition relevant for capital taxation in the European Union. The basic tax competition model a la Zodrow and Mierzkowski (1986) is presented, and the arguments of the literature are subsequently integrated into the framework of the...

International Trade and Agglomeration: An Alternative Framework.